Question 1

Suppose a salon owner notices that their pedicures are very popular with customers. The owner decides to double of the price of the pedicure in order to raise more revenue. Which of the following statements is most likely to be true?

Accepted Answer

Typically, increasing the price of a good or service will decrease the quantity demaded for it. This means that the salon may not sell as many pedicures as before, and their revenue may not double. Therefore, option C is the most likely outcome.

Question 2

A resource is:

Accepted Answer

A resource is anything that can be used to create something of value. This can include natural resources, such as timber, minerals, and water, as well as human resources, such as labor, knowledge, and skills.

Question 3

Suppose that a policymaker is considering offering free college tuition to all low-to-moderate income families in your state. There are currently 1,000 students attending college who would meet the income qualifications to receive free tuition, and tuition is $10,000 per year. Which of the following statements is most likely to be true?

Accepted Answer

Offering free tuition is likely to incentivize additional students who meet the income qualifications to attend college, increasing the number of beneficiaries beyond the current 1,000 students and thus increasing the cost of the program above the initial $10 million estimate.

Question 4

The use of resources in the most productive way possible to produce the goods and services that have the greatest total economic value to society is called:

Accepted Answer

Efficiency refers to using resources in the most productive way possible to produce the goods and services that have the greatest total economic value to society. Innovation refers to introducing new ideas, products or processes, sustainability refers to meeting the needs of the present without compromising the ability of future generations to meet their own needs, and economic quantity is not a commonly used term.

Question 5

Something is valuable if:

Accepted Answer

Value is subjective and dependent on individual preferences or desires. Therefore, something is valuable if someone wants it. The other options do not necessarily indicate value - A does not address value at all, B only describes what a valuable thing could be but not necessarily that it is valuable, and D only refers to the resources used but not whether the end product is valuable.

Question 6

If you generate a new idea that has not yet been implemented by others, and the idea offers a more profitable use of some resource, it is likely an example of:

Accepted Answer

An idea that has not yet been implemented by others and offers a more profitable use of a resource is an example of innovation, which is the process of creating new ideas, products, or methods to meet a need or solve a problem. Innovation often leads to advancements in technology, increased efficiency, and greater profitability. Market failure refers to a situation in which the market does not allocate resources efficiently, intervention involves government or other external organizations intervening in the market to correct market failures, and a goal other than profit would not necessarily result in a more profitable use of resources.

Question 7

You have an idea to open a rooftop restaurant in the downtown area of your community, as none currently exists. However, after some investigation you discover that any rooftop restaurant would violate city regulations. What makes this an abnormal circumstance?

Accepted Answer

The fact that city regulations prohibit a rooftop restaurant makes this an abnormal circumstance, as it is an intervention by the government that is preventing the implementation of a new business idea.

Question 8

Which of the following is an example of a disincentive?

Accepted Answer

The "Mug Shots" webpage would serve as a disincentive because it publicly shames law breakers, making them less likely to commit crimes in the future due to the negative consequences of being publicly called out.

Question 9

Which of the following is an example of a goal other than making a profit?

Accepted Answer

All of the given options are examples of goals other than making a profit. Helping the poor is a philanthropic goal, making great art is a creative goal, and promoting social justice is a moral or ethical goal.

Question 10

Suppose the government would like to reduce smoking rates among teenagers. Which of the following policies is designed to achieve this goal by changing incentives?

Accepted Answer

Raising the tax on cigarettes increases the cost of smoking, making it less desirable for teenagers who are often financially constrained. This creates a disincentive for teenagers to start or continue smoking. Policies like A and B may increase awareness about the harmful effects of smoking, but they do not necessarily change the incentives for teenagers to smoke. Policy C may have an impact, but it is not likely to be as effective as raising taxes because many teenagers obtain cigarettes from friends or family members who are of legal age to purchase them.

Question 11

Which of the following is an assumption that economists make?

Accepted Answer

This assumption is the basis for the market system and the invisible hand concept. It is assumed that individuals and firms will act in their own self-interest and provide the goods and services that people want, in order to maximize profits.

Note: A is incorrect because not everyone possesses entrepreneurial talent. B is incorrect because people often make decisions based on incomplete or imperfect information. D is incorrect because individuals often make rational decisions on the margin to optimize the use of their resources.

Question 12

Muhammad Yunus, founder of Grameen Bank, was a pioneer in implementing group responsibility to lend to the poor. Why wasn't someone else already doing it?

Accepted Answer

While there were microcredit initiatives before Grameen Bank, the idea of using group responsibility as a way to lend to the poor was a new and innovative concept. The traditional banking system was not designed to serve the needs of the poor, and other organizations didn't think to use this approach.

Question 13

Economic analysis requires us to combine:

Accepted Answer

Economic analysis requires us to use both economic theory and direct observations of economic phenomena. This combination allows economists to develop and test hypotheses about economic behavior and to inform policy decisions with empirical evidence. The other options listed (A, C, and D) are not necessarily required for economic analysis.

Question 14

Yasmin has an idea, but she cannot implement it because a monopoly producer has placed a barrier to entry. What makes this an abnormal circumstance?

Accepted Answer

The presence of a monopoly producer placing a barrier to entry indicates market failure because it limits competition and prevents new entrants from establishing themselves in the market. This can lead to higher prices, decreased innovation and less consumer choice.

Question 15

An incentive is:

Accepted Answer

An incentive is something that changes the trade-offs people face, meaning it alters the costs and benefits of a decision. The other choices are related to the concept of marginal analysis, but they do not directly relate to the definition of an incentive.

Question 16

When the government alters normal market activity, this is known as:

Accepted Answer

When the government intervenes in normal market activity, it is known as intervention. This can involve government policies, regulations, subsidies, or taxes that are designed to influence market outcomes. Market failure (option C) refers to situations where the market does not allocate resources efficiently, while innovation (option A) refers to the creation of new ideas, products, or technologies that can disrupt markets. Unexpected outcomes (option D) can occur in any situation, but it is not specific to government intervention in markets.

Question 17

For which reason might you incorrectly conclude that an idea no other person has implemented is highly profitable?

Accepted Answer

All of these factors can influence whether an idea is profitable or not, and if you have not accurately accounted for them, you may overestimate the potential success of the idea. Misjudging people's wants and constraints can mean that your idea is not actually solving a problem or meeting a need. Miscalculating the trade-offs people face can mean that they are not willing to pay as much as you expect for your product or service. Misunderstanding how people respond to incentives can mean that your pricing, marketing, or rewards structures are not effective in driving behavior.

Question 18

Which of the following is an example of a positive incentive?

Accepted Answer

Offering a reward to anyone who finds the missing pet is a positive incentive as it encourages people to actively search for and return the pet, thus increasing the chances of finding it.

Question 19

The idea of efficiency is used to address which of the following questions?

Accepted Answer

Efficiency is about using resources in the most effective and productive way. Therefore, the question being addressed is whether resources are being allocated in the best possible way. A, B, and C are important considerations in decision-making, but they are not specifically related to efficiency.

Question 20

Suppose you have an idea that you believe offers substantial opportunity, but no one has ever implemented this idea before. What conclusion should you draw?I. People are irrational.II. You have come up with a new innovative idea.III. Your may have misevaluated how people will respond to new incentives.IV. You are being irrational.

Accepted Answer

II and III are correct because having a unique idea does not necessarily mean people are irrational; it could indicate innovation or a misjudgment of market demand or consumer behavior.

Quiz 1: Economicsand Life